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Chinas Economy and the U.S.-China Economic Relation Dr. Gene H Chang The Asian Studies Institute and Economics Department University of Toledo ©

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Presentation on theme: "Chinas Economy and the U.S.-China Economic Relation Dr. Gene H Chang The Asian Studies Institute and Economics Department University of Toledo ©"— Presentation transcript:

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2 Chinas Economy and the U.S.-China Economic Relation Dr. Gene H Chang The Asian Studies Institute and Economics Department University of Toledo ©

3 The U.S. and China

4 Basics of China ChinaU.S. StatisticsWorld Ranking StatisticsWorld Ranking Population1330 million1305 million3 Area (sq km)9.6 million49.8 million3 ClimateDiverse but most temperate TopographyMostly mountainousMostly flat Renewable water2829 cu km63069 cu km4 Economic size (GDP) 6 trillion $315 trillion $1 Life expectancy at birth (years) (of 223 entities) (of 223 entities) Human development Index (of 169) (out of 169)

5 US and China: Important Relationship

6 China becomes increasingly important to the U.S. because of … … its economy … … Integration between the U.S. economy and Chinese economy Disputes over trade and economic issues Disputes over other issues, from environment, human rights to military presence

7 China: truth and myth The size of the Chinas economy Chinas dynamics China as a challenge to the U.S. in the 21 st century Chinas own problems and weakness The U.S. strategic relationship with China in the 21 st century

8 Top trade partners of the U.S. (2011) Country Total Trade Volume (Billion $) 1Canada China Mexico Japan195 5Germany147.5

9 US Imports from China Made in China

10 China buys 30 Boeing aircraft in $3b deal Flying into the future: Boeing's next-generation is China-bound.Picture: AFPFlying into the future: Boeing's next-generation is China-bound.Picture: AFP As the world's aviation industry reels from the impact of the September 11 terrorist attacks and a global economic slump, China has signed off on a $US1.6 billion ($A3.2 billion) deal to buy 30 new Boeing jets. The purchase agreement was signed in Washington on Tuesday at a ceremony witnessed by the US Secretary of Commerce, Donald Evans, and the vice-chairman of China's State Development Planning Commission, Zhang Guobao. China buys 200 Boeing aircraft In JANUARY 2011 THE US SIGNED A $45BN EXPORT DEAL WITH CHINA, THE TRADE DEAL INCLUDES A $19BN PURCHASE OF 200 BOEING AIRCRAFT. World´s Largest McDonalds in Beijing US exports to China

11 GM's China sales top U.S. total, a first for the automaker Automobile sale in China (million units) GM sold more cars and trucks in China than it did in the U.S. in 2010, marking the first time that a foreign market has outpaced the automaker's domestic sales in its 102-year history.

12 Top trade partners of the U.S. (2011) Country Trade Deficit (Billion $) 1China Mexico65.6 3Japan62.6 4Germany49.3 5Canada Saudi Arabia 33.7

13 Why China is a big trading partner of the U.S.? Comparative advantage: China has cheap and productive labor – –But why not other developing countries? Gravity model, the size of the Chinese economy – –But China is distant away A stable but undervalued currency peg to the U.S. dollar – –But what about other Southern American countries that also use dollars?

14 Size of the Chinese Economy GDP by exchange rate (2011) (billion $)

15 Average annual growth rate ( )

16 The quick rise of the Chinese economy China

17 Chinas contribution to global growth China now contribute more to the global economic growth than the U.S. – –Chinas GDP x growth rate = 574 billion $ – –The U.S. GDP x growth rate = 393 billion $

18 If the trend continues … U.S. China

19 If the trend continues … If the trend continues, it is estimated that China would overtake the U.S. to become the largest economy by the year of The fast change in the ranking of China is due to two reasons – –the higher economic growth rate, say, at a sustainable of 10% – –the restoration of the true value by the undervalued Chinese currency RMB.

20 True size of the Chinese Economy GDP by Purchasing Power Parity (2010, billion $)

21 Foreign exchange reserve (billion dollars, Dec. 2010)

22 Electricity production (billion kwh, 2008) China, 4140, 2010 Electricity production is often used as a proxy for GDP at PPP for countries

23 Automobile production (million vehicles) Figures include passenger cars, light commercial vehicles, minibuses, trucks, buses and coaches Automotive production is a proxy for manufacturing activities

24 World Steel Production 2009 Steel production is a proxy for fixed capital formation and housing construction (investment goods)

25 Food production 2008 (m tons) Measures the agricultural output

26 New Residential Building Construction (million square meter per month 2010) UN monthly bulletin. U.S. adopts the unit of set thus not comparable

27 Construction everywhere

28 High speed rail

29 How should the U.S. meet the challenge? China poses a challenge for the U.S. in the 21 st century. What is important is how the U.S. should adopt a better strategy and policy to meet this challenge. To maintain the lead in the global economy, the U.S. should rely on the market system, but also understand that the governments active role cannot be diminished in correcting market failures.

30 China is weak China is still poor, GDP per capita is low. Deteriorating environment may not sustain future economic growth Chinas population is aging very quickly in the coming years Corruption and inefficiency are rampant China has a widening income gap China is unstable and economy remains inefficient because of lack of rule of law China lacks of an education system that truly promotes creative research and development China is politically unstable because of lack of democracy and an independent legal system.

31 China is weak Renewable water and energy consumption are on the per capita basis ESI is environmental sustainability index Ferterlity: U.S. 2.05; China: 1.79

32 Chinas demographic time bomb

33 Income gap CountryGini Coefficient (the higher the worse) Sweden23 Taiwan33 United Kingdom34 U.S.45 China46.9 Brazil56.7

34 Lack of free information flow Scholars in China cannot even access wikipedia.org hence much of information Needed for modernization is lost

35 Lack independence of judiciary and no rule of law Private property is still not well protected That scares many private entrepreneurs. They are seeking emigration to the West after they have money, thus billions of dollars of capital flies back to the U.S. The party determines everything hence impeding independent thinking, entrepreneurship and creativity.

36 Rampant corruption and waste Corruption in China growing at least as fast as the economy John Garnaut, Beijing Railway Minister Liu is arrested for corruption Chinese politician Bo Xilai's wife accused of murdering UK businessman over business interests

37 Lack of transparency and democracy to vent peoples grievance, causing the system fundamentally unstable

38 A call for political reform from the party China Daily has just reported Premier Wen Jiabao reaffirming political and economic reforms. On the table are government transparency, creating conditions allowing people to criticize and supervise the government, and media being a watch-dog. But it is widely said that Wen represents only the minority in the party and the conservatives are dominant

39 Conclusion China is a large economy with a big momentum. China is still a poor country with many domestic problems, it will remain substantially behind the U.S. in per capita term for many years ahead. China is dynamic. The norm would be surprises and uncertainties. Do not be surprised if one day you wake up and hear that China overtakes the U.S. in some areas, or, you hear there is a political uprising and the system is in a crisis and breaks down. The best hope for China by the rest of the world is that it gradually moves forward to economic prosperity and political democracy. The relationship of the U.S. and China is one of the most important in the world in the 21st century. We need to enhance our understanding of China and form a better strategy / policy to meet this challenge.

40 Conclusion: the future generation of China …


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